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Get Your Business Finances Straight so You Can Grow - Amazon Seller Tips with Sam Hill - Part 2
March 21, 2022
Maximizing Profits with Better Financial Insights - Amazon Seller Tips with Sam Hill - Part 2
Things we discussed in this session:

A. Part

B. Part 2

Things we mention in this session of Seller Round Table:

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Transcription in this episode:
[00:00:01] spk_1: Welcome [00:00:02] spk_0: to the seller roundtable e commerce coaching and business strategies with Andy Arnott and Amy Wees. Yeah, absolutely. Honestly, I think it starts with you, the entrepreneur and what you're trying to get out of your business, are you the type of more lifestyle entrepreneur where hey, I'm kind of happy where I'm at, I want to grow a little bit, I want to grow 10 20% and I don't want to like take a bunch of risk and launch new products or, or launch on a new channel or um, you know, make any drastic changes and there's absolutely nothing wrong with that. But I think it's the realization of, are you that type or is 2022 do you have these master plans of, hey, I'm going to launch five new products and I'm gonna launch on in a different country or a different platform. I'm gonna try out Tiktok ads and um, I'm gonna blow it out of the water this year. So because those are two very different sets of decisions. Um, and assuming that you're, it's more in the latter camp of, Hey, I really want to grow next year over, you know, over 30%, 100%. Um, then yeah, I think there's a few core assumptions that you need to put into your projections or mindset or model, I think number one ads aren't going to get any cheaper. So you're not, you're gonna not be able to continue to just put in a dollar and get back five and how does that change your calculus of your business if you're not able to scale your amazon ads or facebook ads or google ads effectively and we've seen that obviously play out in the last two years, but assuming that's going to continue maybe not at the pace it did for the last two years, but what are you gonna do about it? I think the second assumption would be stuff always takes longer than you think. And I think myself and my clients have, it seems like they have to relearn that lesson over and over and over again. And specifically, specifically I'm referring to a new product launch or a new hire. Whereas hey, this year I really want to pull myself out of the op or some out of the operations of the business. I want to hire someone else to to take that over and I wanted to do that in january and if you're starting now you're not going to, that person is not going to start in january, I promise. Uh so we should assume that and plan for longer time periods and bigger budgets about whatever you plan to, to spend on hiring that person, you should increase that budget or whatever timeline it is. And I think the same goes for for new products. I mean see several of our clients with uh, you know, marketing calendars with, hey we're going to launch this new thing Q. One, we're gonna launch two new things in Q. Two and five new things in Q. Three And it depends on the product if it's a complementary product that you've already had in the works manufactured um and everything. Yeah, sure, like you could probably reach that timeline, but the question is, what if you don't and is the success of your business contingent upon you doing these things? And if it is, I think we should take a step back and say, okay, well, again, what, and it is my business still gonna succeed if I don't accomplish these things? And um so I think it's kind of like over inflating our timelines and schedules, and everyone always says it, but no one doesn't, everyone thinks it's not gonna happen to them, and then it always does, and they're like, oh well why didn't I grow 100% this year? It's like, okay, well like all these things happen later later than you thought, and I think related to that is uh ignoring the balance sheet, and we don't necessarily think, we always think everything is going to happen in the best case scenario, and again, that's pretty uncommon, so we need to look to our balance sheets and understand them just as much as we do our profit loss statements. And what I mean by balance sheet is how much cash do I have in the bank? What is my, what is my burn rate if the, if I get kicked off of amazon or if I get deactivated or my listings get pulled down for whatever reason, um, am I gonna be able to pay my employees? Am I gonna be able to pay myself, um and what does that look like and what am I, what's actually at risk? And how much risk do I have on the table? And then, you know, other balance sheet KPI S like um your current ratio or your quick ratio or it's also called an asset test ratio, What does that look like and what, what are my assets to liabilities and debt to equity and and all that kind of stuff. Um and understanding, um again, what, what the strength of the balance sheet is and what can I endure if, if things don't work out exactly as planned. [00:05:34] spk_1: I love that. So I want to get into each one of these meeting points that you gave the first one you talked about, you know, you need to have a plan but also include your finances in that plan. So, you know, if you, you want to launch 12 new products this year, I mean, that does go into your second point of everything is gonna take longer, especially if you don't have the staff to do that or you know, you need to think through that, right? But also having a financial plan for that and understanding the financial implications of doing that and then kind of all three things that you mentioned play off of each other, right? Because if we're looking at our balance sheet and our burn rate and, you know, our our assets and all of that. Um but we're if we're ignoring the balance sheet, but then we have this plan to launch 12 new products this year and, you know, we just, we have no idea how we're going to make that happen. And we're just, I think so many of us, business owners are a little bit reactive, right? We're like, okay, I'll just across the bridge when I get to it and then we're like, okay, I'm out of money and now my best seller, that I need to buy more inventory for my money is tied up over here in this thing that I didn't think about, I didn't think ahead for this other thing. Right. So everything that you do, in terms of your plans, of course it's going to take longer than you think it will. And then also, you know, you need to think ahead in terms of finances so that you go, okay, if I'm truly gonna grow, what is that going to look like in terms of revenue and expenses? And will my burn rate allow me to actually achieve that or do I need to look at funding and then do I have the assets to get that funding? Am I gonna be, you know, in the right place to do that? So I love how everything that you're talking about when it comes to planning, um also needs to be, we need to think ahead. Um we need to think about the implications on our balance sheet and whether or not we need some help and then if we need help, what is that going to look like and what is that person going to care about? Right? Like we need to get money from a bank or money from a loan um What are, what are they going to care about? Are they gonna like our balance sheet is all that going to be good. So I love that. I think it's it's really smart, I think I want to add, you know, one of the key things planning is for me it's so important. Um but the key thing that I think that people and I would love to hear your your take on this as well, but I think the key thing that people do when they're planning or don't do is they'll plan kind of at like the beginning of the year and you know, or maybe the beginning of a quarter and they kind of they don't revisit their plan and make adjustments and then, you know, look at lessons learnt, things that aren't going the way that they're going that they want them to go and they're not being held accountable for that plan along the way. Um and that ends up, they just kind of get upside down and they forget what they, you know, plan to do in the first place, because they're stuck in that one product launch, that isn't going well, or the one, you know, whatever it is, right? But um, but I think that that is key, is consistently revisiting your plan and looking at those metrics and making sure that you're measuring those things and keeping track of them. Do you find that that's a common mistake that people make? [00:09:12] spk_0: Oh, absolutely, and and I'm I'm guilty of the two of my own business? Uh and I think the question is, how do we, how do we move past that, or how do we deal with it? And uh for me, I think, and it's so easy as a solo preneurs, or if you're the 100% business owner, you don't have a partner. Uh and you don't have anyone to really be accountable to other than yourself. It's really easy to hide, it's easy, easy to hide, and like, well, I know that that's kind of in the closet somewhere, but I'm not gonna deal with that. So at least I've found helpful for myself is I need to somehow either pay for the accountability or say it publicly in some way to to hold me accountable whether that's a CFO or a business advisor or, you know, in the early stages it could be a friend or something, um, or posting it on social media or something, uh some way to have a little bit of almost shame component to say, okay, this is what I wanted to do and this is my progress towards that and when you have to present your financials or some financial data publicly we start to clean it up pretty quickly and and actually monitor it and actually track it and and again I'm guilty of this too and I I have to protect myself from myself and hold myself to the plan that that I set in whatever form or fashion that takes and get around other business owners and to say hey this is what I said I was gonna do, do it and I think that's the most vulnerable that [00:11:06] spk_1: I've ever been in my business is when I've been preparing to sell it because like I really have it's like you have to be ready for that pitch every day, you have to know your numbers, you have to be on top of it and I feel like you know that's why I always encourage people to go get their business value because that way they can understand like okay what am I doing wrong and what am I doing right and what do I need to actually track because your your balance sheet or your P. N. L. Is not the same as what a buyer or somebody who values your business is going to look at and so you need to know what those things are and for me like since I've been on the journey to potentially sell my business, I've like really had to clean up a lot of things like, oh wow, that's bleeding and I didn't even realize it because I was just looking at you know my quickbooks, right, okay. That's actually an ad back. Um you know, but an expense I need to watch. You know, those are all I just, I track my business finances in a different way. And so I think that it's so important to always think about our businesses from a perspective of um from value, you know, what is this business worth because if it's not worth anything then we have a problem, right? We're not growing our business. Um so yeah, I would encourage everybody out there to not only know your numbers as SaM has encouraged you to but also to know your numbers from a what a buyer cares about perspective and keep those metrics straight and be tracking those on a regular basis. [00:12:39] spk_0: Yeah. And and again, I know this is a finance conversation but this applies to every function in your business for operations. If you had to explain what your operations processes, is it a disaster? And you're like, well this is what I should be doing, but this is what I actually do and all of my supplier email or supplier conversation is buried in an email somewhere and it never gets updated a spreadsheet. I don't know what's coming in or when I'm sending stuff to amazon, I don't know what I paid. I don't, like, I'm not keeping track of all my costs and it's just a hodgepodge of whatever. I kind of feel like doing that day finances the exact same thing or, you know, marketing or if I'm running ad campaigns, can someone off the street open my google ad account and determine what my campaign naming means? [00:13:40] spk_1: Yeah, same with Amazon, right? I'm like, what do you have going on here? You have 1400 campaigns and I don't understand any of this and they don't either. Right? And yeah, I agree. Every aspect of your business, It's like being organized, right? Getting organized, understanding it, holding it accountable because ultimately it's going to reflect on the financial side to if you're, if you're, you know, you're not keeping your suppliers organized, you don't know what's coming in, you don't know what's going out. You don't, you don't understand any of that. Well then your books are going to be a mess too, because your account is not gonna be able to keep track of your inventory numbers or do your accrual based accounting. It's just gonna be, it's gonna be a mess. And those are all lessons that all of us have to learn. So it's, it's good, you know, like you said, I don't always do it perfectly in my business? You know, it's, it's about being aware of, okay, what do I need to do better and I think, you know, we can always think of our businesses, okay if somebody else is going to take it over tomorrow, like how would I, could I actually hand it off? Is am I running my business or is my business running me right? That's that's kind of a good measure to go by. So I love it, I love it. Okay so let's talk from the let's let's I always ask you know advice in terms of if you have somebody that's just getting started, they're just getting started in econ, they're just building their brand um what would be your advice for them to set them up for success on the financial side? [00:15:15] spk_0: Yeah if you're just starting again if you're just starting don't even sign up for an accounting software and I know I shouldn't say that as the owner of a finance and accounting firm but um make sure that you're proving traction on the product side and on the sales side and and marketing side and making sure that you're that product is selling and you've got the right product in place before you add all of the admin stuff and finance stuff because you know your intuition as an entrepreneur is usually good um And it's more about supplementing that intuition with people like me to either validate an assumption or provide you a little bit deeper financial insight or operational insight or marketing insight but in general like follow your intuition and don't try and overcomplicate business, make sure you're selling a product that people want profitably and you're going to have a good sense of whether or not that's true if you're just starting and then layer in the complexity as you grow. But I think I've made that mistake in the past racism, entrepreneur of trying to add too much infrastructure too fast and and it gets really overwhelming really quick and I didn't necessarily focus on the core of the business that that I needed to and like all the peripheral stuff is fun. It's and it's necessary but at the right time. So that's what I would give to someone just starting out. [00:17:00] spk_1: I love that advice because it also forces them to know their numbers as well before their hiring someone else or just outsourcing. And I often see people like I just want to outsource my PPC, I want to outsource and it's like you have one product can we can we just like make sure that you understand your profitability and your, you know, your basic advertising on your primary platform, like you should have those basics down, you know, before you're completely outsourcing everything and like you said, adding in those complexities. So along that same note, when is someone ready to hire a CFO, when is someone ready to work with somebody like you, how do they know when it's time to move beyond that, you know, we've we've, we've scaled beyond ourselves now, we've hired our bookkeeper, we've got that stuff going. We're good. How do we know when it's time to hire a CFO. [00:17:54] spk_0: Got it. Yeah. And it's um, I think it's a little bit more nuanced than that because there are plenty of people on up work or available for on project basis on on an hourly basis. So I think the question is as you scale, how do you know when to add or more capability or more and more dedicated resources from finance and again, marketing operations is the same. So in general I say that you know when you're selling 50 to $100,000 of products, assuming that it's more than one skew, Then you need to have someone look at your numbers, do a general review, spend maybe anywhere from like 5-20 hours kind of look at stuff, and and point out um some weak points there. But that's about all you need. And I'm assuming we're just selling on, on amazon. So that's pretty straightforward. Once you start to cross into the $200,300,500,000 in sales, that's when your, your decisions get more and more costly. If you screw something up and your inventory purchases get larger, the checks that you're writing for ads get larger. So that's when you need someone like us on a more regular basis of, hey, we need to switch to accrual accounting, We need to do monthly growth margin and contribution margin analysis. We need to have an understanding of what your ad performances by skew or by product type or by geography or however your businesses is structured. Um, and if it's a multi channel understanding, you know, how's my amazon profitability, look from my Shopify profitability or my walmart profitability. So yeah, I would, once you, once you get into that a few $100,000 half million dollar um, range, you definitely need to have someone more regular and then once you start to cross the seven figure multi million dollar business, that's when you absolutely need someone on a monthly basis. Um, providing you with all of that reporting as well as discussing higher level strategy of, hey, well what should I do to, you know, hedge my amazon risk, my platform risk or what is it gonna cost me to the launch in France or um, hey, my supplier terms have all has been 70 30 and my lead times are eight weeks and I need to go negotiate with them. What do I need to negotiate for? What are the most important levers to discuss with them. So that's Why don't you cross into that? That seven low seven figure range is really when you need um, more dedicated support. And then Once you've reached the $20, $30 million dollar mark, that's when you need a full time person that is, uh, you know dedicated to you full time. They only care about your business and they're thinking about your business in the shower. Uh and and and because and and the business can support a full time person at the, at those revenue levels when you're, you know, when you're a million dollar seller, that's amazing. But assuming you're making, I don't know, 10 20% of, so let's say you're you're netting $200,000 you're not going to pay a CFO 150 period. So you need someone, you you need the support, but you need it fractionally just the same, making the same argument for, again, operations and marketing. So that's kind of how I think about the different levels of scale and different levels of support that you need? [00:21:53] spk_1: That's awesome. That's really good in terms of helping people navigate those financial needs as they grow and as they scale and from start all the way to, you know, that big brand full time CFO um awesome. So before we wrap it up, I love to ask and we love to ask um what is it that is keeping you motivated? Are you as a business owner? Are you reading certain books? Are you listening to certain podcast? We love to take people's suggestions there and hear what you're doing to stay motivated. [00:22:31] spk_0: Are these business only books or can we share personal as well? [00:22:35] spk_1: It's it's whatever is personally for you, keeping you motivated, keeping your mindset in the right place, helping you as a business owner um to be there. So we've we've heard so many different things from different people have been on the show and I think it's it's all beneficial to hear from the different perspectives. [00:22:54] spk_0: Yeah, absolutely. Um I'm trying to make sure that when I do in my laptop or start my day that uh it's more intentional and I don't, I'm not just opening my laptop because I feel anxious and I somehow feel comforted that I opened my laptop and I'm not very productive. So I think keeping that in mind has been super important for me uh in terms of reading and motivation, um one thing that's really keeping me motivated is connecting with other people and it's face to face as much as possible. There's a good little group here in Austin of of other agencies that do various things and um you know, they're either larger or smaller than we are and it's just really motivating to be around those other people and I get a ton of energy from that. But in terms of reading I really like lately, I normally just read one book at a time. I feel like I'm reading for it at a time and one of them is the hard thing about hard things. Ben Horowitz's book, I love, I really loved Ray Dalio's principles as an entrepreneur, although they're not really commerce related, but I think it's have been really interesting and I've I've read more fiction as well and more sci fi and I think those books have helped me just as much as the business books because we can only take in so much data and there's there's 1000 business podcasts out there and different business books and and everything and they all have great advice, some better than others, but at the end of the day you need to decide what's good for you and what works the best for you and your business and just go implement it and just go do it. Uh and I don't know, stop consuming and start producing. I've tried to be cognizant of that as well. [00:24:55] spk_1: I love it. All right, last but not least, SAm how do you define listeners? Get in touch with you? How do they get themselves in Aecom CFO, [00:25:07] spk_0: awesome. Yeah. Check us out at dot com's CFO dot co dot com. But dot co or you can email me directly sam at Aecom CFO dot co. Uh We don't really do social media, but uh you're welcome to schedule a call on our website. Would love to help out your listeners and got this has been awesome. Thanks so much for having me. [00:25:31] spk_1: Yeah, thank you so much for being here and thanks everybody for listening in today and hopefully you took something away today that you can do better and you can always reach out to uh to SAm at aecom CFO dot Co um to get more advice or um an audit of whether or not you're ready for that and I'm sure no matter what, you're going to get some really great information there. So thank you so much SAm for just being here today and for helping us understand all of of the financial and business matters that have to go along with running our businesses and in a better way. And again, thanks everybody for listening. We appreciate you guys so much. Don't forget to rate, review, subscribe and we will see you guys next week on the seller roundtable. Bye everyone. [00:26:26] spk_0: Awesome. Thanksgiving. Thanks for tuning in, [00:26:32] spk_1: join us every [00:26:33] spk_0: Tuesday at one PM Pacific Standard [00:26:35] spk_1: time for live Q. And [00:26:36] spk_0: a. And bonus content after the recording at cellar roundtable dot com, sponsored by the ultimate software tool for amazon sales and growth seller. S C O dot com. And [00:26:47] spk_1: amazing at home dot com.